If you own a small business that has a value of five million dollars or less then the value of your business will most likely be based on your Seller’s Discretionary Earnings (SDE) which is also called Owner’s Discretionary Earnings (ODE).
Owner’s Discretionary Earnings
SDE (ODE) is calculated by adding the salary, payroll taxes, health benefits, retirement benefits, and financial perks that you, the owner of the business, were able to provide for yourself. This gives a potential buyer a good idea of how much income they can expect if they buy your business.
Typically 70% of the small businesses on the market are selling for less than $200,000 with a multiple of 3 or fewer times their SDE with most of those businesses never being sold. This is due to the fact that owners have worked hard for what could be years and earned less than $75,000 a year doing so. They have only succeeded in creating a long hour low paying job that is not attractive to potential buyers.
By completing and optimizing all of the 12 key business success elements, the goal is to have your business create at least $100,000 in owner’s discretionary earnings and achieve a 4 or 5 multiple of those earnings. Then if you elect to sell you could walk away with half a million dollars or more.
Businesses with strong owner’s earnings and that have completed and optimized all 12 key success elements are usually very attractive to potential buyers and command a premium price when sold.
What do your current Owners Discretionary Earnings look like?
The Business Success Scan will show you exactly where you are currently for your Owner's Discretionary Earnings and provide you with the resources to optimize earnings for your business.